Seattle's Aspirations Versus Big Pharma's Appetites

Seattle Genetics (NASDAQ:SGEN) does not shy away from an ambitious goal of following companies like Celgene (NASDAQ:CELG), Biogen (NASDAQ:BIIB) or Gilead Sciences (NASDAQ:GILD) into the ranks of big biotech on the back of its antibody-drug conjugates for cancer. “We think we can be the next big important biotech company,” its chief executive, Clay Siegall, tells EP Vantage.

The next few months will make clear whether Seattle can deliver on this goal. The big catalyst for the group will be the Echelon-1 phase III trial of the Hodgkin lymphoma therapy Adcetris, which could more than triple the eligible patient population by allowing the drug to move into earlier treatment regimens.

A positive readout for Echelon-1 could result in an uplift in sales and allow Seattle to transition from a money loser into a profit-making group that can support a pipeline development and a global commercial organisation. The trial in 1,300 patients aims to substitute Adcetris for bleomycin in first-line treatment with chemotherapy, and thus eliminate sometimes life-threatening pulmonary toxicity.

Enrollment was complete more than a year ago, and Seattle is now waiting for a sufficient number of disease progressions to accumulate before the trial’s database can be unlocked.

A blockbuster, eventually?

Expectations of Echelon-1’s success are largely behind blockbuster forecasts for Adcetris. The eligible US population for Adcetris would grow from 3,000 patients to 10,000 with success in Echelon-1, an expansion that could take Seattle from being the 30th-ranked oncology company in 2015 to 21st by 2022, according to EvaluatePharma.

In the meantime, Seattle used Ash as an opportunity to detail updated data from Adcetris in CD30-expressing lymphomas like cutaneous T-cell lymphoma. A follow-on antibody-drug conjugate, vadastuximab talirine, also had phase I data in acute myeloid lymphoma, an intractable disease that has seen limited innovation and has attracted the attention of academics and non-profits to drive new treatment options (Ash – Precision AML trial adds pharma candidates to the mix, December 5, 2016).

Data on the pipeline projects denintuzumab mafodotin and SGN-CD48A also made an appearance at Ash, and later this month Seattle will also detail data for SGN-LIV1A in triple-negative breast cancer at the San Antonio Breast Cancer Symposium.

Mr Siegall points to the big biotechs as Seattle’s model for staying independent.

“They continued [developing] drug after drug. They did not sit back and rest – no patting yourself on the back,” he says. “They continued to find unmet medical needs, and continued to bring in products and discover products.”

Independent oncology companies with a commercial product and a decent pipeline are uncommon, however, making Seattle an obvious takeout target. But Mr Siegall, like most biotech executives in his position, outwardly expresses little interest in a trade sale. “For us, we see that our trajectory is so strong looking forward that we’re certainly not looking to get acquired,” he says.

Value vs price

The fact that it has not yet fallen to a bid could be in part down to its healthy $9bn market capitalization, which is significantly higher than the combined $5.5bn net present value of Adcetris and its two R&D products with forecasts, vadastuximab talirine and denintuzumab mafodotin.

Yet this mismatch in value and market cap has not been an impediment for similar transactions, such as Abbvie’s (NYSE:ABBV) acquisition of Pharmacyclics for half of the commercial rights of CLL agent Imbruvica – the difference being that Pharmacyclics was a one-product company.

Before that can happen, a successful outcome of Echelon-1 will probably be a trigger for interested parties who will need to balance the potential of Adcetris and its followers carefully against the chunky valuation – in the event of failure, Morgan Stanley analyst Andrew Berens reckons shares could fall up to 56%. Should an eager buyer emerge, Mr Siegall’s ambitions for Seattle might no longer fit with shareholders’ aspirations for profit taking.